Housing Credit Crunch Crimping Automobile Sales
The New York Times has an interesting look at how the housing credit crunch is spilling over into automobile sales. Selected excerpts:
Home equity loans, which had been used in at least one of every nine deals, when lenders were more generous, are no longer a source of easy money for many prospective buyers. And used-car prices have fallen nearly 6 percent as repossessed cars and gas-guzzling trucks and S.U.V.’s flood auction lots.
But the auto industry may not suffer the same severe downturn as the housing sector. One reason is that auto lenders have long issued loans expecting that vehicles, as collateral for the loans, start to lose value as soon as they are driven off the lot. In contrast, mortgage lenders during the housing boom believed that home prices would keep rising.
Borrowers are falling behind on their car payments at a rate faster than in other recent downturns. And losses are considerably worse. Auto lenders sustained losses on about 3.4 percent of their loans in the first quarter, a rate about 30 percent higher than in 2002, according to data from Moody’s Economy.com.
Some of the biggest drops in car sales have been in areas where home prices have fallen most sharply. The housing boom created thousands of jobs, robust consumer confidence and strong demand for pickup trucks. Today, that has all vanished.
As home values have declined, millions of consumers have maxed out on home equity debt.
In hot markets like California, nearly 30 percent of all consumers tapped into the value of their homes to help finance their new cars, according to CNW Marketing Research. In Florida, about 20 percent used home equity loans. New car sales in both states are down about 7 percent.
Those areas are also seeing surges in repossessed vehicles. Bill Glover, a veteran repo man in Fort Meyers, Fla., says he has recovered more than 100 cars a week since October, doubling his usual business. “I’m picking up 2008s already,” he said.
In the past, Mr. Glover mostly took back cars from borrowers with sketchy credit who habitually fell behind on their car payments. But that circle has widened. “Lately what we’re picking up is crew-cab pickup trucks,” Mr. Glover said, “and anything having to do with construction.”
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